The provincial government announced in the Sindh Budget 2017-18 that the services will continue to face sales tax. However, P@SHA said the practice is negatively affecting the exports of IT services. “The Sindh government has announced through the Sindh Budget 2017-18 that it plans to continue imposing sales tax on exports of information technology enabled services,” said a statement released by the trade body.

The trade body claimed that it had been in talks with the Sindh government and Sindh Revenue Board on the matter of export services sales tax imposition for over a year, and a long due favourable policy announcement was expected in the Sindh Budget 2017-18.

“The Sindh government in a first of its kind move wants businesses in Sindh to pay sales tax on exports, which translates into paying a consumer tax from the service provider’s own pocket,” P@SHA added.

Although the provincial government has proposed to reduce the rate of existing tax from 13% to 3%, Sindh is the only province where sales tax is imposed on the export of IT services. “This treatment is unique to only Sindh where exports and foreign exchange earning businesses are discouraged or asked to move their operations to other provinces/ countries.”

Interestingly, the federal government announced a three-year income tax exemption for new Information Technology & Information Technology Enabled Services companies in this year’s budget. Additionally, IT Services from Islamabad and other federal territories have also been granted a sales tax exemption by the federal government.

Quoting the State Bank of Pakistan, P@SHA said during the period of July 16 to April 17, IT & ITES exports stood at $532.91million of which call centers contributed $67.09 million. P@SHA warned that the bulk of this export could move to other provinces or tax friendly countries, depriving Sindh of potential export opportunities and employment for thousands of local young individuals.